Oil and gas exploration sector regains its mojo

Created: Tuesday, 14 May 2019 07:30

Wood Mackenzie said its eleventh annual exploration survey – in which 258 senior energy leaders participated – reveals that the oil and gas industry is optimistic in 2019, profits have returned and prospects look good

Andrew Latham, vice-president, exploration, said, “We’re seeing a continued recovery in the exploration sector, and this borne out by the drilling plans and new licences we’re seeing.”

“Conventional exploration is still viewed as the primary resource replacement option. And lower costs, both for exploration and development, are key to exploration’s return to value creation,” he added.

Consulting firm Wood Mackenzie stated that high-quality prospects in deepwater sweet spots such as Brazil, Guyana, the Gulf of Mexico and the East Mediterranean attract the most attention.

According to the survey, in 2019, the global exploration budget will total around US$40bn. Drilling accounts for about half of that, while 25 per cent is earmarked for geological and geophysical surveys.

The report added that digitalisation accounts for about 8 per cent of total expenditure, but this will increase as new seismic processing techniques, machine learning and AI become fundamental tools for explorers.

“Digitalisation offers exploration the possibility of better resolution of the subsurface, better seismic modelling and growing use of automated interpretation. Digitalisation has become a consistent feature of our surveys. The survey results back up our expectation that the exploration industry, led by the majors, will spend billions each year on digitalisation,” he explained.

Latham stated that efficiency gains – hard-won during the downturn - mean that doing more with less is now standard. And while there is more investment in the exploration pipeline, that cash goes farther than before. According to the survey, the industry is confident that it can break even with an average oil price of around US$50 per barrel.

Around 22 per cent of survey respondents believe that exploration can break even with brent in a US$55-US$60 per bbl band, while another 18 per cent are comfortable in the US$45-US$50 per bbl range.

Four years ago, companies were looking at a break-even price of around US$80 per bbl before the oil price crash, the survey further noted.

According to survey respondents, the economics of exploration has been improved by moving towards less complexity of the project. Explorers are looking at prospects in less challenging basins, and as Latham noted, this not only reduces costs, it helps improve drilling time–sometimes as much as 30 per cent, and allows for faster project development.

About 36 per cent of those surveyed said they would invest more in exploration this year, while only 13 per cent had cut their budgets from last year. An even greater number (38 per cent) said they planned to drill more wells this year, while only 10 per cent of respondents expect their well count to be lower than in 2018.